Wednesday, 20 July 2016
Key questions for boards in the fourth industrial revolution
“We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before”
· Competition from both sides - new start-ups with radically different business and operating models as well as mega-vendors entering and disrupting industry after industry
· Dramatically rising customer expectations
· Very high levels of technical debt and digital wastage as buyers jump to new technology fads and tactics
· A constant and relentless onslaught from cyber attackers
· Significant risks of legal and regulatory breaches as companies operate within an ever-changing patchwork quilt of international standards and regulations
· Huge pressure on traditional IT systems, supply chains, organisational structures, skills & cultures, ways of working etc that were simply never designed to cope with the speed of change that we see today
· The opportunity to re-invent business models, for example moving from products to services as companies like GE have done with GE Digital
· The potential to achieve exponential growth in new services – Pokemon Go anyone?
· The ability to reimagine experiences, operations and supply chains – Aprecia Pharmaceuticals recently won regulatory approval to 3D print one of their drugs, giving them to potential to re-write the entire way they think about manufacturing and distribution.
· The opportunity to capture, analyse and act on vast volumes of structured and unstructured data, providing insights into competitors, customer expectations and experiences, operations etc
1. Do we have the right composition in the board to be able to navigate the fourth industrial revolution?
2. How will the company’s purpose, vision and strategy need to evolve for the digital age?
A company’s response to the fourth industrial revolution needs to begin with its purpose. Without purpose and vision there is no context to make prioritisation decisions on digital investments and almost inevitably executives will focus on digitising the business of today, rather than re-inventing the business for tomorrow. Companies will focus on creating and executing digital strategies, rather than a business strategy for a digital age. In years past, the role of the board may have been to simply provide an annual review and endorsement of the strategy created by management. Today, companies should be considering how the strategy process needs to evolve and how they can better leverage the knowledge and expertise in their boards for competitive advantage. In turn, boards need to challenge and hold the company true to its purpose.
3. What risks and opportunities does technology create for the company up and down the value chain?
4. How quickly and aggressively do we want to execute?
Several companies I work with can see a future where the company’s business model looks very different to today, but they are struggling with how to get there. Consider the Automotive Company renting fleets of autonomous driving vehicles to city P2P car sharing schemes, or the Health Insurance Company who can predict and prevent health conditions based on digital data. But, many of these companies have incredibly profitable businesses today, and, in many cases technology has not yet reached the mass adoption needed for radically new business models to succeed. A key question for boards therefore is the extent to which they wish to disrupt the current business and how management will cope with the transition from old to new.
5. How are we building the right skills and talent to manage the transition?
Talent, not technology, will arguably be the most difficult battleground for the next decade. Already we face critical skills shortages in areas like cyber and new technologies. In addition, as digital increasingly becomes interwoven into the fabric of the business, every role (from CEO, CIO and CMO to CFO, COO) needs to be up-skilled for a digital age. Many executive teams in industries that have not yet experienced significant disruption lack real experience of navigating the challenges created by disruptive technology.
6. How will we measure management on success?
Boards need to ensure that they are holding management accountable for the right things. Unfortunately there is a significant danger with digital that companies will measure the wrong things (typically clicks & likes). Boards need to challenge their executive teams to show more tangible progress, by focussing on e.g. the success of the new business model, the extent to which the company is fulfilling its purpose, the company’s readiness for their new business model, cyber attacks, talent etc. Arguably, if digital is infused in a company then digital should enhance every dimension of the balanced scorecard, rather than create a new set of metrics.
7. What are the legal and ethical issues arising from our investments in technology?
The Audit Committee chair in particular has responsibility to consider legal and ethical risks for the board. Unfortunately disruptive technologies will create many challenges in this space. Consider, for example, an automotive company moving towards “lights-out” operations and autonomous driving vehicles. As technology displaces jobs, the board will have to consider the social implications. As AI technology increasingly takes decisioning away from human drivers, companies will have to consider what happens when technology gets things wrong. If a car crashes, how will it minimise the damage it causes and who will ultimately be to blame when things go wrong?
Of course there are many more questions that boards need to consider, but hopefully the above offer some suggestions to getting started. Feel free to reach out to me to suggest more!